Mortgage-Service Fixes Faulted by Settlement Monitor

The largest U.S. mortgage servicers, including Citigroup Inc. and Bank of America Corp., haven’t done enough to upgrade their treatment of customers in danger of foreclosure, according to a court-appointed monitor.

To meet the terms of a legal settlement with the U.S. Justice Department and 49 state attorneys general, the monitor said in a report released today, the banks must improve their response to loan-modification requests and their collection of records, and provide a single point of contact for borrowers. The settlement over botched foreclosures requires the banks to submit plans to the monitor for improving their performance.

“I want to send a simple message to these banks that it’s time for them to live up to their end of the deal by complying with all aspects of the settlement,” Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said on a conference call with reporters.

Donovan, who helped negotiate the February 2012 settlement, called the banks’ performance “unacceptable” and said federal and state authorities would fine or “haul them back into court” if they failed to improve their treatment of borrowers seeking mortgage relief.

The banks were required to meet new servicing standards as part of the accord, which came about after disclosures that they used faulty documents to seize homes.

Falling Short

Banks fell short for a variety of reasons, including the difficulties managing their information technology systems and hiring and deploying enough trained staff, Joseph A. Smith Jr., the monitor, said today in a telephone interview.

“It is combination of factors,” Smith said. “I don’t think any of them excuse the fact that they haven’t got this done.”

Smith can take the servicers back to court for further sanctions if they repeatedly fail in the same area after an improvement plan is implemented.

The servicers, also including Wells Fargo & Co., Ally Financial Inc. and JPMorgan Chase & Co., were additionally required to provide $25 billion to consumers in the form of loan forgiveness or short sales, in which lenders agree to allow homes to be sold for less than the mortgages against them.

Smith filed a preliminary estimate in March saying that the banks reported providing about twice that, $50.6 billion, for 621,712 borrowers.

37,900 Hours

For the servicing review, which includes measurements during the last two quarters of 2012 and preliminary data for the first quarter of 2013, 195 workers spent 37,900 hours testing the banks on 29 metrics, Smith said. The reviews will continue, and Smith said he’s working on additional tests to ensure that banks improve.

Reviewers found that Ally was the only bank that didn’t fail any metrics during the test period.

Citigroup in 53 percent of the cases tested failed to inform borrowers within the required five days that their requests for loan modifications were missing some documents, according to a filing Smith submitted to the U.S. district court. Smith described the failings, which exceeded the 5 percent maximum allowed, as “widespread.”

Smith has since approved New York-based Citigroup’s plans for fixing the causes of the violation after requesting that the third-largest U.S. bank almost double the number of employees reviewing documents to 225 and add staff overseas to expand the review process to 24 hours a day, according to the filing. He is reviewing the firm’s remediation plan for contacting affected borrowers, the filing shows.

‘Corrective Actions’

Citigroup is “working to implement corrective actions as soon as possible under the direction of the monitor,” Mark Rodgers, a bank spokesman, said in an e-mailed statement.

Wells Fargo, the largest U.S. mortgage servicer, had a 7.84 percent error rate on notifying borrowers of missing information in their loan modification packages. The monitor was still reviewing Wells Fargo’s plan to correct the issue at the time of his report. Mary Eshet, a spokeswoman for the San Francisco-based lender, said that Wells Fargo brought the shortcoming to the monitor’s attention.

“We remain firmly committed to meeting the standards established by the National Mortgage Settlement and we will continue to improve our services for customers,” Eshet said.

Bank of America also had trouble collecting documents for loan modifications in a timely manner.

‘Adjusted Processes’

Dan Frahm, a spokesman for the Charlotte, North Carolina-based company, said today in an e-mail that Bank of America is back in compliance with that metric, and that it didn’t result in improper foreclosures or modification denials.

“This relates to the amount of time it takes us to notify customers that they have not submitted all the necessary documents for us to make a decision,” Frahm said. “We have adjusted processes to reduce the time it takes to generate these notices.”

JPMorgan Chase, the largest U.S. bank, overcharged consumers by failing to terminate forced-placed insurance coverage in a timely manner, Smith said. Banks are allowed to buy such policies for properties and pass the costs to borrowers who allow their homeowner’s insurance to lapse.

The coverage is typically more costly than regular hazard insurance and banks have about two weeks to terminate the policies and refund borrowers who obtain outside coverage and notify their lender.

Remedial Plan

While JPMorgan’s failure rate was 13.8 percent, the court monitor said it didn’t determine that the bank’s violations were widespread because its remedial plan addressed the court’s concerns.

“In November, we self-identified a potential gap,” said Mark Kornblau, a spokesman for New York-based JPMorgan. “We quickly fixed the issue.”

In addition to the reviews, Smith and his staff met with state attorneys general and fielded complaints from the public and from homeowner advocates.

“As a result of these meetings, I am certain that more work needs to be done to improve the way the servicers are treating their customers,” wrote Smith, a former North Carolina banking commissioner.

At least three state attorneys general have criticized bank practices in the wake of the settlement. New York Attorney General Eric Schneiderman in May said he intended to sue Bank of America and Wells Fargo for violating settlement terms related to processing applications for loan modifications.

‘Repeated Disregard’

The two banks showed “repeated disregard” of the settlement terms, including inordinate delays in reviewing modification requests, Schneiderman wrote in a May 23 letter to Smith.

Massachusetts Attorney General Martha Coakley’s office identified more than 700 violations of servicing standards by the banks, according to a May 1 letter. Florida Attorney General Pam Bondi accused Bank of America earlier this month of “possible failure to comply fully” with settlement terms. Complaints about the bank account for nearly 40 percent of the total 293 complaints the office has reviewed and shared with Smith, she said.

The largest U.S. mortgage servicers, including Citigroup Inc. and Bank of America Corp., haven't done enough to upgrade their treatment of customers in danger of foreclosure, according to a court-appointed monitor.